The Midday Report

For a currency to rally by over $300 in a month is a gold rush, one sure to attract more interest and investors.

Is now the time to test the water with what some are calling the future of currency?

Bitcoin is anything but stable; it has seen huge runs and massive dives. The high stakes rollercoaster is in part because it is such a new and relatively small currency.

A single bitcoin is now more valuable that an ounce of gold, humanity's traditional store of value.

— The Bitcoin price exceed the gold price at the end of April 2017

The total market capital for all cryptocurrencies on 2 May 2016 was $8 billion. Twelve months later and it is now $38 billion. Any industry with that level of growth is worth investigating.

That growth is even more amazing considering that just four years ago the entire industry was worth $1.5 billion. Back then (like it was a long time ago) there were seven currencies available, with Bitcoin leading the field and worth 135 times the value of the dollar.

Fast forward to 2017 and there are over 800 cryptocurrencies. 182 with a market cap of over a million dollars. In just four years the units of currency exceeded the total number of global fiat currencies almost 4 times over.

Considering anyone can create a currency, it is likely that those numbers will continue to grow.

Some would say that it is a technology whose time has come, although this most recent spike is down to a change in Japanese law permitting Bitcoin to be used as a legal payment method.

Over 127 million people with a strong tradition of saving shifting even a little to an investment that is proving more profitable than anything else in Japan. Japan’s low growth economy actually has a negative interest rate.

It suggests there is a mighty rally coming as the surging price attracts more investors, not only from Japan but everywhere.

It may be the next big bubble or simply the ride of your life assuming you are willing and able to take the risk. There is no shortage of people willing to tell you it is a fad or the next big thing and to be fair both could be correct.

Bitcoin as it is currently designed will only allow for 21 million coins and over 16 million are already in circulation. Even with its current market cap, it is a tiny proportion of the potential that could be invested in the currency, that hard limit could see the currency rise significantly for the months and years to come. New coins are added almost every ten minutes with expectations that most of the coins will be released by the early 2020s.

The challenge to serve the growing pool of users will be felt as the currency has potentially significant bottlenecks ahead with transactions and differing views among the developers supporting the project for how best to address them.

The tension has seen the interest in the sector create demand for alternative currencies with Ethereum currently attracting the most attention and growing to be second largest currency by market cap, albeit it only a third of Bitcoin at the moment.

The volume of Bitcoin bought in South Africa. It peaked in March this year when over R15 million was invested in the week. (it does not contain the most recent week)

The interest will help attract more mainstream adoption and, given how mind bendingly weird blockchain and cryptocurrencies are, there is a definite risk of scams and ponzi schemes as old as the hills using the buzzword "Bitcoin" as a sales technique.

The bad news

The scope of this article is not to provide investment advice, nor is it intended to overstate the scale of the developments. But it is likely that media coverage will have a very positive spin because there are few other financial stories so novel and offering this kind of growth.

To help put it into perspective: All the 800 plus currencies have a collective investment worth less than Bill Gates' personal wealth .

Apple has almost 10 times the volume just in cash as the entire market.

Despite Bitcoin being worth more than an ounce of gold, there are 200 times more ounces of gold above the ground than there are Bitcoins in existence.

The global stock market is 1800 times the size.

And the the conservative estimate for the size of the global derivative market is over 15 000 times the size.

So, in global terms it is still a tiny market, but given it did not exist until January 2009, it has made its mark like few other digital innovations.

If you are willing to do the research, and have some cash that you could afford to lose, you may be glad you heard about the rally of May 2017. But if you, like most, are tight for cash this is not an option to be considering.